Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192887 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 277
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
This paper investigates the effect of domestic market size on innovation activities across different durable good industries in the Chinese manufacturing sector. We address the endogeneity of market size by an IV strategy, based on a measure of potential market size, which is driven only by changes in the Chinese income distribution. This measure is exogenous to changes in prices and qualities of durable goods and is a valid instrument for expected future market size. Our results indicate that an increase in market size by one percent leads to an increase in firm-specific total factor productivity by 0.46 percent and an increase in labor productivity by 0:50 percent. These findings are robust to controlling for export behavior of firms and supply side drivers of R&D.
Subjects: 
China
Demand-Induced Innovation
Directed Technical Change
Durable Goods
Economic Growth
Engel Curves
Market Size
Middle Class
Non-homothetic Preferences
JEL: 
D31
L11
L68
O31
O33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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